Showing posts with label Stephen Lendman. Show all posts
Showing posts with label Stephen Lendman. Show all posts

October 27, 2007

Torture, Occupation and Genocide

Torture, Occupation and Genocide

*US citizens aren't exempt. We're all "enemy combatants" under this
law. Anyone charged under it loses all constitutionally protected rights
and can be subjected to cruel and unusual punishment including torture.

By Stephen Lendman

Special to PalestineChronicle. com*

On October 5, George Bush confronted a public uproar and defended his
administration claiming "This government does not torture people." That
claim was hardly accurate. Once secret US Department of Justice (DOJ)
legal opinions confirm the Bush administration condones torture by
endorsing "the harshest interrogation techniques ever used by the
Central Intelligence Agency." It also condones paramilitary thuggery,
oppressive occupation, and genocide.

*Torture as Policy under George Bush*

In a hollow posturing gesture, DOJ publicly declared torture "abhorrent"
in a December, 2004 legal opinion. That secretly changed after Alberto
Gonzales became Attorney General in February, 2005 and authorized
physical and psychological brutality as official administration policy.
This continues unabated in violation of international and US laws that
include fifth and eighth amendment prohibitions against cruel, inhuman
or degrading treatment or punishment in all forms for any reason. These
practices been long-standing US official policy, nonetheless, but the
mask came off post-9/11 when former CIA Counterterrorism Center chief
Cofer Black (now Blackwater USA's vice-chairman) told a joint
House-Senate intelligence committee hearing September 26, 2002: "There
was a before-9/11 and an after-9/11 (on the use of torture). After 9/11,
the gloves came off" and "old" standards no longer apply.

Further, George Bush signed a secret September 17, 2001 "finding"
authorizing CIA to kill, capture and detain "Al Qaeda" members anywhere
in the world and rendition them to secret black site torture prisons for
interrogation presumed to include torture.

As White House Counsel, Alberto Gonzales then wrote a sweeping
memorandum to George Bush January 25, 2002 calling the Geneva
Conventions "quaint" and "obsolete" and claimed the administration could
ignore Geneva international law in interrogating prisoners henceforth.
He also outlined plans to try prisoners in military "commissions" and
deny them all protections under international law including due process
and habeas rights. DOD Secretary Donald Rumsfeld was on board as well.
In December, 2002, he approved a menu of banned interrogation practices
that allowed most anything short of what would cause organ failure.

A new book called "Administration of Torture," by two ACLU attorneys,
contains evidence (from FOIA requests) from over 100,000 newly released
government documents. It reveals how US military interrogators carried
out abuse and torture orders from their superiors on scores of
prisoners. The book quotes Major General Michael Dunlavey who had DOD
responsibility for interrogations of "suspected terrorists." He and
Guantanamo commander General Geoffrey Miller both told the FBI they got
their "marching orders" from Donald Rumsfeld to use harsh methods at
Guantanamo that presumably were meant for all other US-run torture
prisons as well. It was also revealed that Rumsfeld was "personally
involved" in overseeing the torture-interrogati on of Mohammed al
Qahtani. He was falsely accused of being the 20th 9/11 hijacker,
confessed under torture, and then retracted his testimony later as
completely untrue.

Torture violates international law. The (non-binding) Universal
Declaration of Human Rights outlawed it in 1948. The four 1949 Geneva
Conventions then banned any form of "physical or mental coercion" and
affirmed detainees must at all times be treated humanely. Its first two
conventions protect sick and wounded forces in battle. The third one
defines who is a prisoner of war and establishes "minimum standards" for
POW treatment. The fourth convention applies to civilians and affords
them protections during war that require they be treated humanely. All
four conventions have a common thread called Common Article Three. It
requires non-combatants be treated humanely at all times. There are no
exceptions for any reasons and violations are grave breaches under
Geneva and other international law that constitute crimes of war and
against humanity.

The European Convention followed Geneva in 1950. Then in 1984, the UN
Convention Against Torture became the first binding international
instrument dealing exclusively with the issue of banning torture in any
form for any reason. These are sacred international laws all
signatories, that include the US, are bound by. No longer under George
Bush's unconstitutional "unitary executive" authority power grab
Chalmers Johnson calls a "bald-faced assertion of presidential
supremacy... .dressed up in legalistic mumbo jumbo." Condoning torture as
official policy under it is Exhibit A.

In her important new book, "Cowboy Republic: Six Ways the Bush Gang
Defied the law," law professor and current National Lawyers Guild
president Marjorie Cohn calls torture abhorrent and violates at least
two US laws - the 1996 War Crimes Act and 1994 Torture Statute. The US
is also party to the International Covenant on Civil and Political
Rights (ICCPR) that guarantees the right to life and prohibits cruel,
inhuman and degrading treatment.

The 1996 War Crimes Act provides up to life imprisonment or the death
penalty for persons convicted of committing war crimes within or outside
the US. Administration memos from Gonzales, John Yoo, Jay Bybee, and
David Addington supported dictatorial powers for the president and
advised Al Qaeda and Taliban interrogators were exempt from torture laws
under George Bush's "commander-in- chief powers." Cohn, in her book,
explained "the Torture Convention permits no such exemption, even during
wartime."

Yoo and Bybee also distorted what constitutes torture by claiming
psychological harm must last "months or even years." Otherwise, it's
just harsh "enhanced interrogation" of the secret kinds George Bush
authorized in a July, 2006 executive order. They reportedly include
sleep deprivation, simulated drowning, stress positions, prolonged
isolation, sensory deprivation and/or overload, beatings, induced
hypothermia, and more that can cause irreversible physical and
psychological harm including psychoses.

The October, 2006 Military Commissions Act followed, appropriately
called the "torture authorization act." It gives the administration
extraordinary unconstitutional powers to detain, interrogate and
prosecute alleged terror suspects and anyone thought to be their
supporters. The law lets the president designate anyone in the world an
"unlawful enemy combatant," without corroborating evidence, and order
they be arrested and incarcerated indefinitely in military prisons
outside the criminal justice system without habeas and due process
rights. US citizens aren't exempt. We're all "enemy combatants" under
this law. Anyone charged under it loses all constitutionally protected
rights and can be subjected to cruel and unusual punishment including
torture.

Ironically, on the one year anniversary of the Military Commissions Act
enactment, Fr. Louie Vitale and Fr. Steve Kelly were both sentenced to
five months in federal prison for opposing torture. They also oppose
teaching it at Fort Huachuca, Arizona and tried to deliver a letter with
their views to the base commander, Major General Barbara Fast, former
head of military intelligence in Iraq. Both priests were arrested for
trespassing while kneeling in prayer on the base driveway in November,
2006. In an appalling miscarriage of justice, the presiding judge
refused to allow any evidence of torture to be introduced. He also ruled
out discussion of the illegality of the Iraq war and all references to
international law.

Relief from these type abuses are nowhere in sight as leading Democrats
condone them and now assure extremist Attorney General nominee Michael
Mukasey's nomination won't be challenged. He promises business as usual
that's bad news for supporters of the law. He earned his bona fides as a
US District Court Southern District of New York judge by ruling Jose
Padilla, a US citizen, could be imprisoned without trial and held
indefinitely by the military.

Padilla spent three and a half years uncharged in a 9 by 7-foot isolated
South Carolina Navy brig cell where he underwent alternating sensory
deprivation and overload and was denied the right to counsel for two
years. Months of beatings, mind-altering drugs, and denial of medical
treatment destroyed his mind, turned him to mush, and him easy pickings
to convict on all charges without evidence he broke any law. Under Bush
administration justice, we're all potential Jose Padillas in a nation
where the rule of law affords no protection, and torture is the
preferred means of social control.

*Administration Outsourced Paramilitarism*

The Bush administration believes anything government can do private
business does better, so let it. And that applies to the military as
well with Blackwater USA's powerful emergence Exhibit A. Author Jeremy
Scahill portrays the company as "the world's most powerful mercenary
army" in his frightening new book about it. It describes a "shadowy
mercenary company (employing) some of the most feared professional
killers in the world....accustomed to operating without worry of legal
consequences. ...largely off the congressional radar." It has "remarkable
power and protection within the US war apparatus" with unaccountable
license to practice street violence with impunity that includes
cold-blooded murder.

A congressional report indicates Blackwater received more than $1
billion in mostly State Department no-bid contracts since 2001. It's to
provide security services for US diplomats, officials and others once
assigned to the military at around six times the cost and can be up to
$1200 per man-day. With Bush administration backing, it operates outside
the law and Uniform Code of Military Justice (UCMJ) and is immune from
civil lawsuits like the military. Scahill calls the company the "Bush
administration' s Praetorian Guard" with "immunity and impunity" to do as
it pleases.

Today, around 200,000 private contractors operate in Iraq. Up to 100,000
of them are paramilitary mercenaries from companies like Blackwater,
DynCorp, ArmorGroup, Erinys, Triple Canopy and others like the
Australian-owned Unity Resources that murdered two Iraqi women October
9. Blackwater is the largest, is close to the Bush administration, and
is cashing in big as a war profiteer from huge continuing no-bid contracts.

The company was founded in 1996 by former Navy SEAL Eric Prince who's
also closely allied to the extremist Christian Right. Blackwater came
into its own post-9/11 and is now the world's best connected, largest
paramilitary army. It employs 2300 personnel in nine countries with
20,000 or more others on call as needed. The company also has its own 20
aircraft fleet that includes helicopter gunships as well as a private
intelligence division and a 7000 acre Moyock, North Carolina
headquarters Scahill calls "the world's largest private military base."

Controversy surrounding Blackwater made headlines after its mercenaries
killed as many as 28 Iraqis in al-Nisour September 16 by some accounts
and wounded dozens more. It was only the latest incident involving the
company that has a disturbing history of instigating unprovoked violence
and then falsely claim it acted in self-defense as Eric Prince told
Congress saying his men act "appropriately at all times."

A new congressional account from State Department and company documents
reveals otherwise. It shows the company has been involved in at least
195 "escalation of force" incidents since early 2005 that include
previously unreported Iraqi civilian killings. In at least one of them,
evidence proved Blackwater personnel tried covering up what happened
with a falsified report, and the State Department made no effort to hold
them accountable or order the company to pay compensation to the
families of the victims.

Agence France-Presse reported on September 16 Blackwater personnel shot
recklessly "at everything that moved with a machine gun and even with a
grenade launcher (as well as from two hovering helicopters) . There was
panic. Everyone tried to flee. Vehicles tried to make U-turns to escape.
There were dead bodies and wounded people everywhere. The road was full
of blood. A bus was also hit and several of its occupants were wounded."
Among the dead were women and children. A daughter witnessing her mother
shot in the head and killed said: "They are killers. I swear to God, not
one bullet was shot at them. Why did they shoot us?"

Following the incident, investigations were launched that are little
more than damage control cover-up. The FBI is involved as well as a
joint American-Iraqi inquiry. Iraqi prime minister al-Maliki has gone
back and forth on this one. At first, he demanded Blackwater personnel
leave Iraq. He then backed down under pressure. He'll likely await the
inquiry's findings that are out in part from Iraqi investigators, but
again said he wants Washington to sever all Blackwater ties, remove the
company from Iraq in six months, and have it pay each family $8 million
in compensation.

It won't ever happen, even though early findings conclude Blackwater's
actions were unprovoked, the al-Nisour massacre was a deliberate crime,
those involved in it should be charged, put on trial, and the families
of victims fairly compensated. The findings are similar to an initial US
military report that one Pentagon official confirmed saying Blackwater's
actions were "obviously excessive, it was obviously wrong. The
civilians... .didn't have any weapons (and) none of the IP (Iraqi police)
or any local security forces fired (on Blackwater). "

Investigations are still continuing, the State Department is in damage
control mode, and an October 4 House-passed bill (not retroactive) just
made US contractors accountable for felony crimes under the 2000
Military Extraterritorial Jurisdiction Act (MEJA). In addition, new
operating procedures have been instituted to paper over the whole
affair. Nothing, in fact, will change, however. Blackwater personnel
will stay in place, none of them will face criminal charges, and things
are again business as usual with the company's paramilitaries back on
Iraqi streets after being banned from operating there by an impotent
prime minister.

A sign of things to come came a day ahead of the October House Committee
on Oversight and Government Reform Blackwater hearing. It was revealed
the company's Presidential Airways subsidiary got a new government
contract to supply aircraft, crew and equipment for flight operations in
Afghanistan, Pakistan, Kyrgyzstan and Uzbekistan. Blackwater personnel
may likely show up anywhere and currently patrol New Orleans streets for
the Department of Homeland Security (DHS) post-hurricane Katrina. Their
presence is menacing everywhere, and they may show up soon in a
neighborhood near you as the "war on terrorism" touches down at home.

*Imperial Conquest and Occupation*

Current rhetoric aside, even Alan Greenspan's new book admitted what's
"politically inconvenient to acknowledge (but) everyone knows: the Iraq
war is largely about oil" and it was "essential" Saddam be removed to
control it. Unmentioned was Iraq's importance that explains why
Washington plans permanent occupation of the country. The Middle East
has two-thirds of the world's proved oil reserves; Iraq has the most
untapped amounts of it; and it's the easiest gotten, cheap to refine
light sweet kind Big Oil covets. The country is also strategically
located between Saudi Arabia and Iran at the top of the Persian Gulf.
That makes it a perfect site for military bases sitting atop an ocean of
oil worth trillions of dollars and surrounded by lots more of it.

The strategy to seize it was simply conceived but hopelessly flawed -
replace the "cradle of civilization" with a newly created free market
paradise with all that oil as grand prize pickings. It's still up for
grabs, but a huge supportive infrastructure is in place and still being
built for permanent occupation.

By May, 2005, US forces were operating out of 106 bases around the
country from an original 120 number of sites. They range in size from
the huge Main Operating Base (MOB) Camp Victory complex near Baghdad
airport with thousands of US troops to others for fewer numbers called
Forward Operation Sites (FOS) that are still major installations. There
are also many smaller Cooperative Security Locations (CSL) as well as
prisons and detention facilities throughout the country plus others for
Iraqi military and police units.

A sign of permanency are four to six or more super-bases built and
planned, the largest of which is the huge Balad one. It's the major Air
Force facility in the country with its state of the art "Kingpin" air
traffic control center (called the Common Grid Reference System) that
divides the country's airspace into "kill boxes." The Army's largest
logistical support center and secret Combined Joint Special Operations
Task Force (CJSOTF) are also there as well as well as thousands of
civilian contractors in neighborhoods charmingly called "KBR-land."

Balad and other major bases are enormous in size and on the order of
small towns. They encompass 15 - 20 square miles with double runways as
long as 12,000 feet, and Balad's air traffic operates round the clock
and is comparable in number of takeoffs and landings to Chicago's O'Hare
that along with Atlanta's Hartsfield are the world's two busiest airports.

In addition, they have their own neighborhoods and kinds of amenities
found back home. They include department store-sized post exchanges,
fast food outlets, movie theaters with the latest films, swimming pools,
miniature golf courses, elaborate gymnasium and sports facilities,
satellite internet access, cable TV, air-conditioning, international
phone service and more. All the comforts of home including takeout pizza
and Monday night football in the middle of a war zone.

Other major facilities are at al-Talil near Nasiriya in the South; the
largest Marine base at al-Asad in Western Anbar province; al-Qayyara, 50
miles southeast of Mosul in the North; the US military command HQ at
Camp Victory/Camp Liberty near Baghdad International Airport; Camp Marez
near Mosul Airport; Camp Cook north of Baghdad; and a new base near
Irbil in the North. In addition, another new Forward Operating base is
being built near Zurbatiya near the Iranian border to be completed in
November. It's location is provocative as the centerpiece of a new
border control surveillance, monitoring and logistical support strategy
called "Combat Outpost Shocker."

Then, there's what critics call "Fortress Baghdad" or the "ultimate
gated community" inside the city's four square mile fortress-like Green
Zone. It's surrounded by thick blast-proof concrete walls, and to enter
visitors must pass through up to eight checkpoints. Inside, security is
intense and includes full body searches, electronic scanners,
explosive-sniffing dogs and every other human and high-tech measure
imaginable for security.

The US embassy compound is there as well that when finished will be the
largest in the world. It's Vatican-sized in dimensions and hugely
fortified atop 104 acres, or six times larger than the UN complex in New
York. Reports vary on whether 21 or 27 buildings are planned but their
cost plus all facilities and perimeter security will top $1 billion.
Construction is continuing, far behind schedule, it's reported to be
shoddy, and it's already way over budget as predicted so the final cost
remains uncertain but will be plenty.

The compound has everything - its own water, electricity, sewers,
apartment buildings, swimming pool, shops, Marine barracks and will
house more than 1000 civilian staff plus a large private and military
security contingent. For the Iraqi people, it's a hated symbol of
imperial occupation Washington intends to be permanent, but it may in
the end go the way of the Saigon embassy in 1975. That's where the last
US Vietnam remnants were frenetically rooftop-helicoptere d out of the
country in humiliating drawdown defeat. It ended visions of permanence
then the way history may one day repeat in Iraq.

*Imperial Genocide in Iraq*

By any estimate, the human toll in Iraq is horrific from all that
happened after Saddam's August 2, 1990 Kuwait invasion. Four days later,
Operation Desert Shield was launched. It began with US-led UN-imposed
economic sanctions, large US and other troop deployments to the region,
and a sweeping Kuwait-funded PR campaign to win public support for
Operation Desert Storm that began January 17, 1991.

Before it ended six weeks later on February 28, US forces committed
grievous war crime violations of the Hague and Geneva Conventions and UN
and Nuremberg Charters. They included gratuitous mass killings as well
as bombing and destroying essential to life facilities that included:

-- power generating stations;

-- dams;

-- water purification capabilities;

-- sewage treatment and disposal systems;

-- telephone and other communications;

-- hospitals;

-- mosques;

-- residential areas affecting 10-20,000 homes, apartments and other
dwellings;

-- irrigation sites;

-- food processing, storage and distribution facilities;

-- hotels and retail establishments;

-- transportation infrastructure;

-- oil wells, pipelines, refineries and storage tanks;

-- chemical plants;

-- civilian shelters like Al Ameriyya that was attacked February 13,
1991 by two laser-guided "smart bombs" killing around 400 civilians
including 142 children;

-- factories and other commercial operations;

-- government offices;

-- historical sites; and more in a willful malicious effort to return
the country to a pre-industrial age and punish its people horrifically.

Lost was power, clean water, sanitation, fuel, transportation, medical
facilities and medications, adequate food, schools, private dwellings
and places of employment. Early post-war estimates placed the number of
civilians killed at 113,000 (mostly children) according to the Red
Crescent Society of Jordan. In addition, US CENTCOM commander, General
Schwarzkopf and others, estimated 100,000 or more Iraqi military deaths
plus thousands more killed gratuitously as they were retreating in disarray.

What then followed was 12 years of the most comprehensive genocidal
sanctions ever imposed on a country as an act of vengeance and
US-imposed imperial arrogance. They were first adopted in UN Resolution
661 four days after Iraq invaded Kuwait. They included a full trade
embargo that crippled the country economically but initially allowed in
food, medical and other essential humanitarian needs. UN Resolution 670
followed in September, 1990 that imposed an air blockade and measures to
enforce it.

After the war in April, 1991, UN Resolution 687 was adopted. It required
Saddam accept cease fire terms and comply with Geneva protocols banning
biological and chemical weapons. It also affirmed Kuwait's sovereignty,
but it wasn't good enough for US officials who wanted sanctions to
remain in force until Saddam was removed.

Later on, the oil for food and medicine program was adopted under UN
Resolution 986 in 1995 but was hopelessly inadequate by design. An
internal UN report in 1999 revealed it delivered only $74 of food per
annum per person (about 21 cents a day) and $15 worth of medicines
(about 4 cents a day) with vitally needed items banned or in short
supply like syringes, anesthetics, vaccines, antibiotics and other
drugs. Everything with potential "dual use" was blocked - chlorine to
purify water, vital medical equipment, chemotherapy and pain-killing
drugs, ambulances, and anything Washington wished to deny the country
punitively with horrific consequences.

Further complicating things, all Iraqi funds were frozen and
administered through a US-controlled Development Fund for Iraq. In
addition, UN Resolution 661 stipulated all goods entering the country
had to be approved by a 15 member committee that included the five
permanent Security Council members. Approval had to be unanimous with
every member having veto power. The US representative abused his
authority by blocking items or causing long delays in importing others.
The practice became so extreme, on one occasion baby food was denied on
the grounds adults might consume it. At other times, items on the World
Health Organization (WHO) humanitarian priority list were blocked such
as rice, school books, paper, agricultural pesticides, medical journals
and catheters for babies.

The results were predictable and devastating. Normal life was impossible
and became a daily struggle to survive. It became apparent by the
mid-1990s many didn't or wouldn't:

-- the UN World Food Program (WFP) reported 2.4 million Iraqi children
were severely at nutritional risk in September, 1995;

-- in December, 1995, the UN Food and Agriculture Organization (FAO)
said 12% of Baghdad children were "wasted, 28% stunted and 29% under
weight;"

-- by year end 1995, FAO reported 567,000 Iraqi children
sanction-related deaths;

-- by March, 1996, WHO noted a six-fold mortality rate increase among
children under five;

-- in October, 1996 UNICEF reported 4500 monthly Iraqi children deaths
from sanction-caused starvation and disease;

-- by 1999, the under five child mortality rate rose three-fold from
1989, malnutrition doubled, and the entire young child population was
affected;

-- UN Secretary-General Boutras-Boutras- Ghali noted how health
conditions deteriorated dramatically by the mid-1990s, and by 1997 the
WHO Director General said Iraq's health care system was systemically
broken; in addition, malaria, typhoid, cholera and other
life-threatening and communicable diseases were rampant.

These actions were committed willfully and are war crimes under relevant
Geneva Conventions and other international law. They also constitute
genocide under provisions of the Convention on the Prevention and
Punishment of the Crime of Genocide that "means any (acts like those
listed above) committed with intent to destroy, in whole or in part, the
national, ethnical, racial or religious group (by) killing (its)
members; causing (them) serious bodily or mental harm; (or) deliberately
inflicting (on them) conditions (that may destroy them in whole or in
part)."

US administrations under GHW Bush, Bill Clinton and GW Bush are
criminally liable under "the genocide convention" and other relevant
international law. Up to the March, 2003 attack and invasion, more than
1.5 million Iraqis, including over one million children, likely died
from the combination of war and economic sanctions. Two UN heads of
Iraqi humanitarian relief resigned under them in anger and frustration
with Dennis Halliday saying in 1998 he did so because he "had been
instructed to implement a policy that satisfies the definition of
genocide: a deliberate policy that has effectively killed well over one
million individuals, children and adults" including 5000 Iraqi children
monthly in his judgment.

To date, most members of Congress are mute on the Iraq genocide and
continue funding it with hundreds of billions of taxpayer dollars. Yet
on October 10, the House Foreign Relations Committee hypocritically
passed a non-binding resolution calling the 1915 - 1923 Armenian
holocaust (taking 1.0 to 1.5 million lives) genocide with a full House
vote on the measure still scheduled for November in spite of waning
support for it and uncertainty where it will go in the Senate.

Speaker Pelosi still backs the measure and in 2006 as Minority Leader
pledged to support legislation "that would properly acknowledge the
Armenian Genocide. It is imperative that the United States recognize
this atrocity and move to renew our commitment to eliminate genocide
whenever and wherever it exists." Today, Speaker Pelosi is mute on Iraq,
Afghanistan and fully supports AIPAC's agenda and its top priority of
war with Iran. She's not bothered by her own government's genocide that
far exceeds the Ottoman and post-Ottoman Turkish Armenian slaughter
during and after WW I. The data below estimates as many as four million
Iraqis have perished from 1990 - 2007, but speaker Pelosi's condemnation
of it is nowhere in sight.

Dr. Gideon Polya is a well-published biological scientist who's book,
"Body Count: Global avoidable mortality since 1950," came out this year.
It "documents.. ..non-reported (worldwide) avoidable death(s) of 1.3
billion people since 1950" including in Iraq and Afghanistan. He also
published his data on millions of violent and non-violent deaths under
the three most recent US administrations in articles like his October 7
one on Countercurrents. org. In it, he cites data on Iraq from the
Lancet, UN and British polling firm ORB. His "Asian Wars" totals in
Iraq, Afghanistan, Occupied Palestine and Lebanon are horrific, and, if
correct, exceed any others published to date. A summary of his data follows.

-- Eight million total violent and non-violent deaths in Iraq,
Afghanistan, Palestine and Lebanon breaking down as follows:

-- 70,000 "US-backed" Israeli-caused deaths in Lebanon from 1978 - 2006,
10,000 of which were violent killings "by Israelis" or their "surrogates; "

-- 300,000 1967-2007 Occupied Palestinian Territory (OPT) deaths plus
another 10,000 violent deaths;

-- 200,000 violent 1990-91 Gulf war deaths;

-- 1.7 million 1990-2003 Iraqi sanctions-caused deaths including 1.2
million children under age five;

-- 3.2 million 2001-2007 US Afghanistan war deaths including UN
Population Division data totaling 2.5 million plus 700,000 children
under age five;

-- 2.0 million 2003-07 US Iraq war deaths including 1.2 million UK
polling firm ORB violence-related estimates plus 800,000 children under
age five from UNICEF data; and

-- 500,000 2001-07 opiate drug-related deaths resulting from the
resurgent Afghan opium industry under US-UK occupation; the UN Office on
Drugs and Crime estimates its output at 93% of world production.

Polya cites the failure of occupying powers to supply essential
"life-sustaining requisites" as a major cause of preventable deaths. He
also notes his eight million estimate exceeds the Nazi-inflicted Jewish
holocaust total of about six million. And he rightly observes that major
media misreporting, denying or "ignoring of this horrendous, ongoing
mass" slaughter is the equivalent of Jewish holocaust denial and doing
it endangers security for "both....victims and....perpetrators ."

There's no denying the toll on victims, but consider the cost at home
post-9/11:

-- a nation with no outside enemies permanently at war and claims the
right to wage preventive wars under the doctrine of "anticipatory
self-defense" using first strike nuclear weapons even against
non-nuclear states;

-- world stability and peace further threatened by the administration' s
abandoning NPT, ending Anti-Ballistic Missile Treaty protection,
rescinding and subverting the Biological and Toxic Weapons Convention,
deploying so-called "missile defense" for offense, and plans to
weaponize space toward the goal of "full-spectrum (unchallengeable)
dominance" of all land, surface and sub-surface sea, air, space,
electromagnetic spectrum and information systems plus as much of the
world's energy resources as possible;

-- a military budget hugely exceeding the rest of the world combined;
The Independent Institute analyst Robert Higgs estimates the true FY
2007 budget exceeds $1 trillion with all defense-related items included;

-- a rogue government operating outside constitutional and international
laws and norms with the Congress and courts criminally complicit;

-- an unprecedented wealth disparity in an omnipotent corporatist state;

-- growing social decay and poverty in the richest country in the world;

-- a secretive, intrusive, repressive administration under a president
who disdains the public interest and is a serial liar and war criminal;

-- condoning and operating secret torture-prisons around the world as a
weapon of cruelty, vengeance and social control; and

-- a cesspool of corruption stemming from incestuous business-govenment
ties that defile democracy and mock any notion of government of, for and
by the people.

The toll in Israel is evident as well. Angela Godfrey-Goldstein is an
Israeli Jew, based in Jerusalem, and the Action Advocacy Officer with
the Israeli Committee Against (Palestinian) House Demolitions (ICAHD).
On August 30, 2007, she delivered an address at the UN Conference at the
EU Parliament in Brussels commemorating the fortieth anniversary of
Occupied Palestine. In it, she noted part of the toll on Israeli society
caused by 40 years of Palestinian repression:

-- around one million Israeli Jews "voted with their feet and left the
country;"

-- an estimate by some that up to 50% of Israeli youths refuse mandatory
Israeli Defense Forces (IDF) service plus a "grey" Air Force refusal
rate of around 30%;

-- a significant recent observation from John Pilger that "something
(around the world) is changing. (There's a) swell of a
boycott....growing inexorably.. ..an important marker (may have) been
passed, reminiscent of the boycotts (preceding) sanctions against
apartheid South Africa" that led to the fall of its white-supremicist
government; and

-- her experience working with "diplomats, politicians and aid workers
in Israel and Palestine (shows) that, on an individual basis, there's
enormous personal support and empathy for the Palestinian cause" because
decades of abuse against them are intolerable and must end.

Push eventually will come to shove. We better hope it arrives soon. The
world can't wait much longer.

Stephen Lendman lives in Chicago and can be reached at
//lendmanstephen@ sbcglobal. net.
and listen to The Steve Lendman News and Information Hour on TheMicroEffect. com Mondays at noon US central time.


*SOURCE: Palestine Chronicle*

September 05, 2007

Middle East Madness
By Stephen Lendman
"Bush-Cheney and company are about to attack Iran (and) the groundwork is being set with a flood of propaganda, helped by the media and Democrats." It may be "his last (crazed) hope for immortality" and possible attempt to revive "Republican strength through this classic maneuver of cornered-rat politicians."
http://www.informationclearinghouse.info/article18309.htm

August 18, 2007

The reasons for the Global Financial PANIC 2007
explained in excruciating detail

From GREED to FEAR
and WHY
* * *
Deconstructing the coming Ecconomic Myth

A backgrounder to a love letter from me to
pensioners
who are major victims of a vast Ponzi scheme

Below is long and cumbersome article by John Mauldin. It provides ample opportunity to illustrate what is wrong with perusing the American media for insight into the current global financial meltdown. As it proceeds, I get a right snarky attitude and begin sniping at John's ideas.

I am taking "the liberty" - as is my wont as a one of the new breed of grassrootz journalists- to *snip* at will otherwise you'll lose it - but that said I just couldn't do much to *snip* at all except to add my Pilgrim's Progress morality lessons after certain paragraphs. IF, I had a webcam perhaps I could illustrate this on youtube, but the linkz game is what I am good at.

Sadly, in 2007 there are no messiahs.

Explore the complex reasons why with me ...

As a form of noncomedic relief, I felt it instructive to get comment from those who had a Major Role in bringing it all about on the Greed Side. There is a Commercial Break and an Intermission.

Mauldin's article has been written for investors and is a bit a bit trippy, and my comments will make reading this all the trippier. I have insisted on some form of linguistic purity, and thus you are free to read links on the usage of certain words he uses and words that I use. It's my form of artistic license in the age of internet 'journalism". Specific care has been used to ensure few links are from "old" sources of information.

Most you will not have time to see and probably have not had or taken the time to find. Perhaps, and that's intent, you will use some of these sources of information I'm providing in the future, as this story has 'legs'.

For most of you wiseacres who drop by here for your daily dose of information. I, have faith that anyone who would stop by has a brain with working cells, unlike some bankers and politicos I have met, as well as a bit of time on your hands. I've left in the links, put in MANY other relevant ones, Mauldin's charts are instructive and my comments meant to be totally informative while held together by moral considerations. All bolds in his text are MINE, put in ORANGE and intensified when I so pleased. Comments by me are in PURPLE.

Links grow exponentially as you read on, for Good Reason. This is TRULY the modern day Pilgrim's Progress tale, morphed into an opera in multiple multiple Acts to follow the past two weeks' gory details. If you are bored, you can always go back to the Fear Channel at CNN and grab your bowl of popcorn, while you can still afford it.

Inflation, an unasked-for gift from the Federal Reserve Bank, will be eating up your food dollars, but hard to make the call just when it will take you several hours, a wheelbarrow and your new Amero coins to buy what was once thought to bea an affordable daily treat. Your Rich Uncle will be still be eating at a five-star hotel, however, enjoy whatever his itty-bitty desires.

And for editorial interest, I am not interested in seeing the PANIC bailed out. Time for people to wake up! and see HOW they got SET UP. As a person on a fixed income, my heart goes out to ALL PENSIONERS .. every single one WORLD WIDE; the evidence shows that the pension funds have been selected to be the next patsies. This the next grouping to be smashed by increasing globalization.

Will we soon, as the hedgers hope, maybe, just maybe, see some real leadership will rise to the top? Can the same old spinners and shills show us the way their the financial gloom? Can the New Man produce another Lech Wallesa Type when we need a person like that?

Well, no single MAN is going to bail this out, no matter how much we need a messiah. That man is definitely NOT Warren Buffet - the pension funds of our NEIGHBORS are the new target of a program to SAVE THE RICH and their very poor judgment. Or is it ...?

I've included links to show you why Buffet is a poor bet, but left Volker off the hook for the minute. Why? It's a day-to-day news story and he hasn't entered the stage yet in this financial opera ... but the Slough of Despond can become a reference point to you all. The last "bubble", in the high tech industry, borrowed this phrase widely ...

Here, then, is the whining whine of the Supremo hedge fund consultant, John Mauldin.

"Oh! Woe!" the Tenor sings as he marches off to vacation.

As our curtain goes up, the market is further collapsing and Tenor Mauldin awaits the Baritone who shall arrive, bearing the swords of revenge against a market that just doesn't understand what clever boys the yuppies have been ....

A copy of the Banker's Manifesto can be read by pushing the link.

Perhaps next week, I'll switch to our modern interpretation of the spiritual quest, Slaugherhouse Five, to explain our collective further woes.

Virginia


August 18, 2007
.
End of the World or Muddle Through? This week I try to explain in simple terms the very complicated story of how we went from some bad mortgage loan practices in the US to the point of world credit markets freezing up. There is a connection between the retirement plans of Mr. and Mrs. Watanabe in Japan and the subprime problems of Mr. and Mrs. Smith in California. We find the relationship between European banks and problematic hedge funds. And finally, we try and see how we get out of this mess. Oddly, I think it is hedge funds (and maybe Warren Buffett) to the rescue, but not in the way you would think. It is a lot to cover, so let's jump right in.

*snip*

Since this letter is likely to be forwarded a lot, if you get this and would like your own free weekly subscription, you can go to www.2000wave.com and simply put in your email address. You can be one of my 1,000,000 closest friends who get this letter for free. We will send my Thoughts from the Frontline to you each Saturday morning, along with my Outside the Box, which features the writing of other analysts and comes out on Tuesday.

[Don't say I didn't warn you not to listen to Hedge Fund Types. I am giving you some other options below.]

To say the credit markets are frozen is an understatement. Talking to any number of people who have been in the markets for decades, this is the worst in their memory. Ironically, it is the 100-year anniversary of the Panic of 1907, when one banker (J. P. Morgan) stepped in and provided liquidity to the markets. The central banks of the world are providing liquidity; but as we will see, it is not mere liquidity that is needed.

[I'll say! -V]

You cannot explain the problems with just one or two items. A perfect storm of this sort takes a number of factors all coming together to work its mischief. Bad mortgage underwriting practices, bad rating agency practices, a destruction of confidence, excessive leverage and then the withdrawal of that leverage, the need for yield, greed, and complacency which then in a Minsky moment (explained below) becomes paralyzing fear - all play their part.

An Alphabet Soup of Credit
But let's start at the beginning. In the early '90s, investment banks created a new type of security called an Asset Backed Security (ABS). And it was a very good thing. Essentially, investment banks would take a thousand mortgages or car loans or commercial mortgages or bank loans and put them into a security. You could have a Residential Mortgage Backed Security (RMBS) or Commercial Mortgage Backed Security (CMBS) or a Collateralized Loan Obligation (CLO) and then a Collateralized Debt Obligation (CDO).
I am going to grossly oversimplify the following description, but the principle is correct. Let's take a look at how a Commercial Mortgage Backed Security

[and let's dig a bit deeper and ask who thought them up and ask WHY they were 'invented', shall we? There are links below to clarify some of this alphabet soup later.]

is created. If you are a bank or institution, when you make a loan on a mall or office building, you incur a certain amount of risk. If you hold 100 such loans, you can almost be certain that some of those loans are going to be bad. Further, you are limited in the amount of loans you can make by the capital you have in your company. But what if you could package up those loans and sell them? You get your cash back, and then you can keep the servicing fees and make more loans. But who would want to take the risk of your loans?

Through a form of financial alchemy, you can take your loans and increase the quality of them to potential investors. Let's say you have $100 million in commercial mortgage loans. You take this pool and divide it up into 5-7 (or maybe more!) groups called tranches. The first group gets the first (as an example) 60% of the principal which gets repaid. That means that 80% of the loans would have to default and lose 50% (80% of the loans times 50% loss is 40% total portfolio losses) of their value before your money would be at risk. If the bank originating the loan is not completely asleep at the wheel, your risk of an actual loss is quite small.

So, an investment bank goes to a rating agency (Moody's, Standard and Poor's, or Fitch) [interesting links to follow, see below -V] and pays them a fee to rate that tranche in terms of risk. Since the level of risk is small, that first tranche gets an AAA rating. Then the agency goes to the next group. Maybe it is 10% of the pool. It would get all the principal repayments after the first group. In this case, 60% of the loans would have to default and lose 50% of their value before your group lost money. The ratings agency might give this group an AA rating.

This process goes on until you get to the lowest-rated tranches. There is typically an "equity" tranche which is about 2-4%. That tranche is the last group to get its money repaid. In our example, if 8% of the loans went bad and lost 50% (8% times 50% is 4%) of their value, the equity tranche would lose all their money.

Let's assume the average interest rate on the loans was 10%. Because of the lower risk, the investment bank putting the CMBS together might decide to pay the AAA-rated tranche only 7%. Each successive tranche would get a higher rate, as they were taking more risk. The equity tranche is priced to pay in the mid-teens (or more) if all the loans are paid off.

Now, insurance companies, pension funds, and other institutions [Start think about insurance companies, folks; see below ...] can buy this security that pays an interest rate higher than they could get from a similar government bond. This difference is called the spread. And in the beginning, spreads were high, as not everyone was comfortable with these new-fangled investments.

To see what I am talking about, you can look at the chart below, taken from the open education source at MIT. You can see the whole chapter here.

[Some of MY links, I think, provide better info, as you shall see.]

Let's also notice something. In order to get someone to buy the lower tranches you have to pay them more. So, the more of the loans you can get the ratings agency to classify as AAA, the more interest you can pay to the buyers of the lower tranches to entice them to buy. This is going to become an important point. (I should note that it also means you can charge higher fees for putting the deal together and selling it to your clients.)



Now, this financial engineering is a very good thing. It is one of the reasons for the worldwide economic boom, as it allows capital to invest in all sorts of loans that would normally be considered too risky. And for the vast majority of all these various alphabet securities, the ratings are going to be just about right. AAA CMBS or CLO paper is where it should be. Even AAA-rated prime mortgage paper, which is now selling for a discount, will (in my opinion) turn out to be just fine.

Investment banks put together all types of asset-backed paper. Car loans, mortgages, business loans, credit card debt, etc. are all fair game. And you can mix and match risk if you like. The combinations are endless. So it can be quite a complex task to analyze what you are buying. And to a very great extent, that analysis was delegated to the rating agencies. For all practical purposes, institutional buyers would look at the general classification of the security and then at the rating. It was on the screen, so they hit the bid. If you can't trust your friendly neighborhood rating agency, then who can you trust? And most of these securities had ratings from at least two if not three agencies.

[Ah, ha!! Such neutral interests then, right? Find below who OWNS some of those. There is a problem which is hard to resolve, Captain CapitalISM.]

But (and you know there is a but) there is a problem with subprime-rated paper. In the beginning, subprime loans were made the old-fashioned way. You had to have 80% loan to value and show you had a job and could actually pay back the money. And these loans were packaged up into a subprime Residential Mortgage Backed Security. Eventually, 80% of those loans would get an AAA rating. Now, this means that 40% of those subprime loans would have to go bad and the value of those homes drop 50% before the holders of that tranche of debt lost money. Even with today's loose lending practices, that is unlikely. I think any rating agency is going to be able to justify that initial AAA rating.

[Here comes the set up .. BLAME THE VICTIM of RICO frauds .. This link will lead you to the book you were supposed to be reading in college when you decided spring had arrived and couldn't care less about final exams. The ruling elite may not like it, but said laws are still on the books. You, Dear Reader, will find some interesting links below about getting the Financial Criminals convicted listed below. -V]

But then in 2004 loan practices began to change and had got completely out of hand by 2006. In 2005-6, about 80% of subprime mortgages were adjustable-rate mortgages, or ARMs, also called "exploding ARMs." These loans are so-named because they carry low teaser rates that often reset dramatically higher, increasing the borrower's monthly mortgage payments by 25% or more.

[Teaser rates hit ZERO, as a nice enticement during the yuppie ascent to their trophy homes.]

*snip*
"According to reports from loan counseling agencies across the nation, the main reason homeowners give for falling behind on their mortgage payments is not a change in personal circumstances (such as a job loss), but instead, they are not able to make the increased payments on their ARMs.

"The loan application and review process for 'no-doc' loans was so lax that such loans are referred to as 'liar loans.' In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained inadicated that 60% (!) of these borrowers overstated their incomes by more than half.

[I did this myself in 2002, and the real estate broker moved my ppoved bank- approved mortage to HIS own ARM paper backer. Why did I do that? So that we could secure a home improvement loan of $10,000 at the same time as the 25% down payment as that had eaten all my LIQUIDITY. Inevitably going into default, and they forclosure me quickly, I lost the entire $46,000 in CASH I paid down - of which I saw not one penny back - and voile - I now live in public housing which took me five years to accomplish. In the intervening period of time I moved place to place, always paying top dollar for an apartment that was way substandard in some particular way.

The figures given to the asset 'backer' were fiddled with not by me, but the mortgage lender who knew that with any kind of financial bump, he'd get my property, which was, truth be known, quite nice. It brought the price of every piece of real estate in my neighborhood up. Nice for the realtors, eh? In Canada, this practice was known as 'goesumping' as they got bidders warring with each other to get that one, decent property in a neighborhhod.

For a rich, full investigation of how the housing bubble worked, or did not, in California and other places, have a visit to the dr.housingbubble website. You'll see that most people got involved in the housing finance scams for the same reasons I did. The properties needed major overhauls. Our efforts in doing the work ourselves propted up the retail renovations sector such as Home Depot and Walmart, too - V]

"The newer mortgage products, such as 'piggyback,' 'liar loans' and 'no doc loans' accounted for 47% of total loans issued last year. At the start of the decade, they were estimated to be less than two percent of total mortgage loans. As a result, homeowners have never been more leveraged: the average amount of debt as a percentage of a property's value has increased to 86.5 percent in 2006 from 78 percent in 2000."

Ok, let's run the math. Almost 50% of the loans made last year were made with little or no documentation check, and 60% of those people overstated their incomes by more than half!!! That means 30% of the loans made were to people who were stretching to buy a home and whose actual income would not qualify them for a home anywhere close to what they bought.

[But then with inflation what is potential buyer to DO? Go without the home, which they think is a NECESSITY to keep moving up to keep up with the need for "security, or go without ..? Nice mess to be in. Buying home becomes a HEDGE against inflation in real terms. I warned you this is blame the victim rationale. Things are heating up in The Arugument -- some sort of morality card is being played that the BUYERS should be such straight shooters, when the GAMBLERS/Dealers have free drinks to come in Play Russian Roulette. He is merely showing me why his future plan, buying into the funds of CLO's is the WORST of ALL plans.]

The following chart from RBS Greenwich shows the amount of mortgages hitting the reset button in the next two years.



Research by RBS Greenwich (assuming I read it right) suggests that 20-23% of the subprime loans made in 2006 will go into default and foreclosure.

*snip*

The problem is that the lower-rated tranches comprise as much as 8% of the total pool.

And that may be optimistic. The study done by RBS Greenwich reads: "Our cumulative default projection would translate to a cumulative loss of 10%-11.5%."
As I showed last week, there are already some 2006-vintage subprime RMBS's that have over 50% of their loans at 60 days past due, with over 25% already in foreclosure or having been repossessed. That is in less than a year, and the interest-rate mortgage resets have not even really kicked in! (To see those charts, you can go here.)

[His above reasoning show the need for "best case", "worst case" and "most probable" scenarios to be used. Iffen the WORST case scenario is the case, whoo hoo! PANIC sets in AND fear, not GREED drives The Big Market picture, and that is the case NOW. Things are WAY more complicated than just looking at rational solutions to the global financial meltdown than JUST solving the mortgage loan bubbles at this piont. Although this mortgage bubble appears to be "solved" - at least for a week! Hope you've read this far!!!! Bear with it, we are getting there. It's an opera afterall and we have yet to hear the Fat Lady sing ...]

Turning Nuclear Waste Into Gold (and Back Again!)

But that's not really where the problem is. Let's go to a great chart from good friend Gary Shilling (www.agaryshilling.com). In an effort to make it easier to sell the lower-rated tranches, the investment banks put together a Collateralized Debt Obligation (CDO) composed of just the BBB-rated paper. And then got the rating agencies to give 75% of that paper an AAA rating! So we have turned 75% of BBB waste into gold with the alchemy of ratings.



That means that if those RMBS lose just 5% of their value, everything but the AAA portion of the CDO is wiped out. Any losses beyond that start eating into the value of what a rating agency said was AAA! If the Greenwich projections are right (and these are very serious analysts), then all 2006-vintage CDO's will lose their AAA rating when the rating agencies look at them again. The new rating becomes "toast."
Who owns this stuff? According to Inside MBS, foreign investors own as much as 16% of the total mortgage securities. Mutual funds have about 16%. Oddly, for all the publicity, hedge funds probably have less than 5%. But they were leveraged, so the losses are magnified.

[Cutting to the chase a bit here, but showing you how the Slough of Despond got SO big, take a look at THIS. That is from a Big Pension Fund consultant. You'll see easily all the Big Players relationship to this ... and begin to get the enormity of what's happened. Remember the moral of this Pilgrim's Progress tale is to see how things shifted from Greed to FEAR. To see where the market has been forced to go, read this Michael Panzer article, read by many investors.]

Mrs. Watanabe and the Hedge Fund Connection
If you live in Japan and are retired, investing in bonds is not all that exciting at rates that are barely 1%. But you can exchange your yen into all sorts of currencies that have investments that pay much higher rates. And of course, that makes the yen go lower, which increases your yield. You notice your neighbor is making very nice returns, and you open a retail currency account and start trading. 25% of Japanese currency trading is from small retail accounts.

If you are a hedge fund, you borrow massive amounts of Japanese yen at 1% and invest in higher-yielding investments and make the spread. Life is good. The trade goes on and on.

[Does the phrase "pyramid scheme" spring to mind ...? Oh, those US biz schools sure makes them intelligent these days, don't they . they minor in English Doublespeak, you know. I refer to it as creating money out of thin air. It was all on PAPER.]

Hyman Minsky famously said that

stability breeds instability.


The longer things are stable, the more likely investors are to become complacent and risk premiums drop. Because of the lower yields, investors tend to over-leverage try and keep up their returns. The markets are then likely to have a "Minsky Moment" of instability, and then risk premiums rise and all sorts of assets are repriced.

[The financial press is flocking to read the OpEd News article by Stephen Lindman, who had the nous to get people to look at the risk premiums issue at just the right hour. Check out the definition of nous; it's the stuff of which Great Arias are made.]

And that is exactly what has happened. The markets are de-leveraging. The yen carry trade is going away, and hedge funds and Mrs. Watanabe are driving the yen back up in as violent a move as I can ever recall. Look at the chart below of the euro-yen cross.



Notice the steady move up in recent months of the euro against the yen, and then a 12% correction in just two weeks! Ouch. Whether it was the Canadian or Aussie dollar, you were down big. And that is forcing a lot of funds to sell anything they can in order to meet margin calls. And since they can't sell their CDOs, they sell stocks, commodities, and anything that is high-quality. That means that assets that do not normally correlate with each now all move together. And the movement is down.

[Take a look at that last link to understand why this has SUCH a grave effect on pension funds ... and then see if this guy can "think" his way out this mess. Not my "take", this is the WSJ's take. -V]
.
Groundhog Day For Hedge Funds

One of my all-time favorite movies is Groundhog Day, featuring Bill Murray, where the main character keeps living the same day over and over. One hedge fund manager I know in the credit sector says this whole credit cycle has been like Groundhog Day for certain types of hedge funds.

[Hope springs eternal in the human breast.
Alexander Pope, long deceased.]
In February some of the lenders began to notice that the credit quality of some of the CDOs they were lending on might not be as good as that rating they had. So they went to the hedge funds and banks and said, "We are not going to offer you as much leverage as before and are going to make you take an extra 5% haircut on those bonds."

[In FEBRUARY? The handwriting was around long before that. Far better to ignore it as long as possible to pay for the August vacation. Like a bunch of immature Alfred E. Newmans, they simply said, "What ME, worry?"]
So the funds sold collateral
to make the margin calls.

And guess what? They had to take less than face value. And that lowered the value of those bonds on everyone's books. Which means the banks went to anyone holding those bonds and demanded more margin money and gave less credit, which created more selling and fewer buyers.

The cost of hedging became expensive.

It started a vicious cycle.


In May, the Bear Stearns fund blew up, and the rout began in full earnest. The chart below is from www.markit.com. You can look at any of the scores of indices they track, and see that the problems began in February.

[Read this fantastic comment about Bear Stearns and the problems it has caused I thank Dan Gross of MSNBC for a fabulous link above, one the apologists clearly dislike ... When foreclosures are concentrated in a particular area, it hurts the whole neighborhood. In a fantastic Wall Street Journal article (subscription required) about the impact of subprime lending on a single block in a lower-middle-class section of Detroit, a real estate broker noted that banks would have a tough time selling homes on which they had just foreclosed. "Nobody's going to want to buy into a neighborhood with 20 percent foreclosures," he said. "You end up with no neighborhood." Now think about THAT as you continue to read and you'll see why I say that certain CONgre$$people should get the h*ll out of DC and out from the sway of lobbyi$ts, as this situation has been ALLOWED to develop since FEBRUARY, minimum. NICE. - As for MOTIVE read THIS as to the WHY nothing was done: (2) doing so would have imposed financial hardships on themselves, on their friends, customers, and neighbors. The residents of neighborhoods targeted by subprime lenders typically receive no such consideration. V]



The above chart is of a BBB RMBS CDO (enough alphabet soup for you?) issued early this year! It is now down to $.33 on the dollar, and it may well go lower. Pools of senior bank loans are selling by as much as a 10% discount.
All manner of debt is selling at significant discounts to what it was just 7 months ago.

The problem is, quite bluntly,
that
no one knows
what the values
of
some of the
mortgage-backed securities
are.

And if you don't know, you don't buy. And today, even very well-designed CDOs with no subprime exposure are selling at discounts, if they are selling at all. Senior bank loans are selling at an apparent discount to subordinated debt (which is not selling, so no one knows the value, so the "price" is the last trade).

[Are you getting the addictive nature of the gambling going on yet? A later link to Bob Chapman will reveal how these knuckleheads on The Streets don't really have a clue yet. We call it denial in everyday parlance.]

And what about the banks that bought those CDOs? What exposure do they have? Are they in a fund or part of the bank capital? Do you want to lend them money on the overnight markets, for a few basis points more than government securities? The commercial paper market for many banks has simply evaporated. These banks depend on this market for their financing.

Last week, the Germans had to completely rescue an older, venerable bank which had a great deal of commercial paper and some off-balance-sheet funds which essentially made the bank's balance sheet negative.

If you can't trust a German bank, who can you trust?

This has consequences. As of today, the largest mortgage lender in the US, Countrywide, is now only doing "agency" loans (Fannie Mae and Freddie Mac). Even the best of firms, like Thornburg, are having problems. If you want a nonconforming loan this week to buy a home, either subprime or over $417,000, you may have a very hard time.

[For the Canadian equivalent see Coventree. That link on Countrywide is current as of its bailout and reflects Friday market closing ... They were taking on the paper from the unstable US housing market.

This is my MOST favorite quote ... "It took an emergency meeting Wednesday of Quebec's provincial pension plan and some of the world's largest banks to defuse the crisis."

Oh! Oh! Looks like some CANADIAN pensioners are going to have a very rough ride SOON-ish, as the market continues its meltdown and investor confidence continues to erode. Defuse, diffuse, the pensioners are going to eat it this latest installment of the PONZ game in as our opera progresses. ]

The Rating Agency Blame Game

The ratings agencies have put 101 different CDOs on "watch," which is market speak for "we are probably going to change our rating."

[important concept to grasp here is risk aversion ... anyone still reading, may tell me if I am wrong, but doesn't this tell you WHY the Federal Reserve was FORCED by global presure to make its move on Friday?]

But that's a little too late.
In 2006, nearly $850 million or 44% (up from 37% in 2002) of Moody's Investors Service total revenue came from the rarefied business known as structured finance.

[Please note the change in The Game as of this week on that which is set forth at the link above.]

In 1995, its revenue from such transactions was a paltry $50 million. Moody's took in around $3 billion from 2002 through 2006 for rating securities built from loans and other debt pools. The same pattern holds for Standard and Poor's and Fitch.

[The link on S&P is as of TODAY . Becuz FITCH is a Big Player, to see vaguely what's happened with them as of market close yesterday click HERE. I think more commentary will be coming out on them over the weekend. They are a KEY player to watch carefully, if yer interested in this whacky GLOBAL financial charade ...

Time now to bring you, during Intermission, a MUST read

YOu must need a 'beverage' by now -- this definition of PONZI SCHEME should do the trick

..... Here is what Frank Scott of Dissent Voice has to say about the global impact of this current global Ponzi scheme.

Take yer seat, intermission over.]

In short, the ratings agencies were making huge amounts of money from the investment banks for rating these structured products. And let's make no mistake about it, they were selling their name and credibility. Everyone knew what a AAA rating meant when it came to a corporation or a country.

[Who pray tell, was everybody ..? This is were John's assumptions are showing. People's financing of a place to live is a "product" - that is the illogic of an insane system of finance solely dependent on so-called free trade.]

And even though there were disclaimers in the 500-page documents accompanying the CDO sales material, the investment banks were clearly pointing to the ratings as they sold that paper.

The entire process hinged on the credibility of the rating agencies. Somehow, no one seemed to think that the default rates from "no-documentation" and "liar" loans would possibly be different. I am sure you can find a paragraph in the offering documents which will make that contention, at least obliquely. Lawyers are good at that stuff. But that is entirely beside the point.

[No, it's NOT. As the above link amply illustrates, THE GAME goes on. Try this word, boiler plate. Key phrase; to protect the PROVIDER. Wall Street and the banks routinely use them; they are pumped out each and everyday by a PC specialists and numerour printers under the direction of lawyers. Caveat emptor, and all that. I am positive that plenty of people were highly aware that rates of liar and no doc loans would be SIGNIFICANTLY higher. A home buyer taking them would be the most likely defaulter around. As for other credit "instruments' the boiler plates were design to obscure the risk. But people simply don't read them; that's what their extensive length is designed to do; play down the speculative nature of what's proposed. Looks being everything. John, you are getting too obviously self protective ...]

Credit markets function because there is the belief that if you lend money you will get it back. Ratings are the grease for those markets. Now they have become sand in the gears. If you are a bond buyer on an institutional desk, do you want to risk a career-ending move and buy a bond that you are not ABSOLUTELY sure it is what you think it is? Do you want to buy 3-month commercial paper for a few points of spread from a bank or corporation about which you are not 100% sure? Just how solvent is that bank? So, you wait and go to US government bonds in the meantime.

If you are in Europe, you worry about your money market fund. In the US, you think about your CD at Countrywide if it is over $100,000. Everyone gets nervous, and central banks everywhere have to step in and offer massive amounts of liquidity, as they should.

[Again, we turn to Daniel Gross - another good read - to understand WHY people continue to buy US bonds ...
"many foreigners view the United States as a sort of global bargain basement. And the fact that the big hitters in the game are Chinese, Indian or Saudi reminds us that while the United States is clearly the richest and most powerful nation on Earth, we Americans no longer have the field to ourselves."

And here is the raw truth from Bob Chapman at

International
Forecaster, whose advice is for

those who are going to be able to hang on to

some money.]


Where Do We Go From Here?

Hedge Funds to the Rescue!

This is not the end of the world. I actually think things should sort themselves out by October or so, given no new major surprises. But how do we get back to normal markets?

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The widely esteeemed Mogambo Guru, Richard Daughty, writes this on 20 July in The Daily Reckoning....

Note: I get the Daily Reckoning each and every day, free.

For more information, subscribe to George Ure's Peoplenomics.com for a measly $40 for some great PEOPLEnomics and an extensive roundup on the news each day. Your real Financial Opera guide option.

Also of note is The Privateer .. and this may take some about 3 hours per week to digest. Don't get blindsided in to the US media financial 'take' anymore.

Now back to the young hedge fund manager consultant. Thank you for listening.]

It might be helpful to look at how we got out of the savings and loan crisis in the late '80s. As everyone now knows, Congress changed the rules and allowed local savings and loan thrifts to finance all types of debt. They jumped in with both feet. Many were very bad at assessing risk and went bankrupt. The government [??!!] had to step in and bail out the depositors. The assets of the collapsed savings and loans went into the Resolution Trust Corporation (RTC).

[And for THAT, we owe a huge, huge tip o the hat to George Hubert Walker Bush.]

I had friends who made a great deal of money in that market. They would walk into the RTC offices. There would be two-foot stacks of manila folders, each folder representing a loan. You could go through the files and then make a bid for the whole stack.

Quite often, in the file there would be checks from good borrowers who kept sending in their check for the car or boat. Since the S&L was gone, there was no one to cash them. People were paying $.15 cents on the dollar for good loans, and working out the rest. Now, some of the loans were indeed 100% write-offs. But a lot were not. But there were so many that the RTC simply took high bid and went on to the next pile.
I also had a friend (whom I have lost touch with) that bought half a dozen older apartment complexes that needed work. He got them for very little cash, put his own work into fixing them up, got them certified as lower-income housing and then got government-guaranteed rent. He was able to retire in a few years.

[And thus we find urban itty-bitty sitting rooms, for people to hovel in during the last few years, while virtually no funding goes into constructing real housing for the poor. Again, nice.]

The same process needs to happen in the credit markets. First, we need someone to step in and actually make a market for the downgraded credits. Who is that going to be? Mutual funds? Investment banks? The Fed? No, no, and no.

The answer is that it will largely be distressed-debt hedge funds, both those that exist today and the scores that are being formed as I write. There are bonds and loans, various CDO securities, CLO funds, etc. that are seriously mispriced because of the lack of liquidity and transparency. When you can buy a loan today for $.94 that has a 99.9% chance of being good, you simply take the interest and get the extra return for allowing the loan to go back to par. Even modest leverage produces very nice returns.

[And this adds to the vicious cycle. This was released in the last hour shows how this is DESTROYING banks. This is a global problem, don't forget.]

Savvy distressed-debt managers will go in, look at the paper, and buy it. This time, instead of manila folders it will be electronic files. But with a lot of work, someone will be able to assess the value. Of course, the bad paper needs to be written down and off the books. There will be little appetite for a lot of the riskier paper.

[They could NOT do it before? There is no reason to asume that suddenly the manpower is gong to be availble in the gambling haze to do so now, or ever. However I am sure that some will attempt to do that. I see a real future for optical companies and opticians as attempts are made to do that]

Also, the structure of many CLOs will help. Most CLOs are formed and have a finite life. But for the first 5-7 years, they take the principal repayments and reinvest those dollars in other loans. CLOs that are getting cash today are finding good values.

[What they are doing is holding auctions with printouts of electronic files. It's like those $2 boxes outside the main auction event where nobody knows what is of value and what is NOT, but ta buyer will purchase any box striking their fancy in raw HOPE. A no brainer activity for true gamblers. Treats for eeeeeeeeeeeeeveryone galore!! One simply advertises to find someone to collect these debts LATER.]

Warren Buffett Needs to Take Over Moody's

[!!!!!]


[?????]

Ah .. imagination ...

neverending.

Let's look in my comments

at some of the suggested Messiahs,

remembering that the POINT

of the Ponzi game

is to net the Big Boys an even bigger

part of the pie.]


Second, the rating agencies need to restore their credibility. Warren Buffett's Berkshire Hathaway owns about 19% of Moody's. I would suggest that Mr. Buffett step in take over the company (much as he did with Salomon years ago) and put his not inconsiderable credibility on the line for all future ratings and the inevitable re-ratings that are going to be done.

[Man, o man. This is RICH. And just why is to be missing what Warren Buffet IS doing. This game is made for HIM and the other ritzos, not for YOU.]

The Panic of 1907 was solved by the credibility of one man, J. P. Morgan, who stepped in to provide liquidity. The Panic of 2007 is not a problem caused by lack of liquidity. It is a problem caused by lack of credibility. Morgan could (and did) provide liquidity. Buffett can (and should) provide credibility.

[Let's get into THIS contention, before a new messiah is born. The PANIC of 1907, was EVENTUALLY resolved with the formation of the Federal Reserve SYSTEM, a full six years later, is not a US government agency, despite popular misconception(s). I often wonder what those "for other purposes" actually ARE . Don't you ..? Pundits have pointed out during the year and before that the circumstances are VASTLY different as indeed the financial system is GLOBAL and high tech trading vastly alters the circumstances. PANIC spreads FAST and confidence and credibility are shot ALREADY.

Not only THAT, but the Fed Reserve is now issuing the banks credit. They are deciding who stays in The Game and Who Does Not, as Friday's announcement made very clear. This Guardian article makes it clear; CASH IS KING in the pain trade and the writer goes deeply into the Buffet bailout idea.]


Can Volker be summoned into the trenches yet one more time?)

[Ah ! Clever idea! Big FAT clever idea . let's bring an ONE WORLDER! FAR OUT! He's just beeen a true financial leader of late as this thing came DOWN! BAM! WHOP! Ta DAH! "THEY" will have Bigger Fish coming down the pike for him to fry, soon. Iran, Venezuela, Pakistan, North Korea .. maybe a nice audit prior to the imposition of the North American Union? ]

This is not about whether some person or group at the ratings agencies necessarily did anything wrong, although more than a few lawyers will suggest just that.

[Ever hear of the
RICO Act .....? PRICE FIXING IS ILLEGAL. But to expect our pal Alberto Gonzales, busy protecting all the Bushistas to provide legal direction on the behalf of the American people is a right laff. - V]

This is about restoring credibility to the ratings and markets as soon as possible. Without someone new at the head, future ratings are likely to be viewed with the skeptical (and correct) question,

"Is this from the same group of people who rated that bond that I bought just a few months ago that is down 50%? Why are they right now? Where is the adult supervision? Who has made sure the process is now working?"
[Watch carefully now as The Dude, our young Christian, tries to hold onto his Holy Grail, a nice fat portfolio to wave at his friends in perpetuity; damn those who come along needing homes, or incomes, or social services or who will fall prey to TAXOBABBLE AGAIN!!!

You, of course, John, are free as a US friggin citizen, to keep your entitlements to endless profitability, relying on someone else to keep handing it to you, some endless PARENT in the form of the US Treasury/taxpayer to bail YOU out. Your friends can just keep on drinking that bubbly and Remy, and let DADDY figure it all out . . only this time Daddy ain't gonna do that -- they'll take YOU out, too, as they lean on the average middle class person who just cannot afford one more dollar in TAXES to pay down this incredible debt. Thinking about driving a cab. They're busy, busy, busy setting up the new NASDAQ.
Nasdaq Gives High Rollers A Market Free Of Regulation
Nasdaq is set to launch tomorrow what its executives are calling one of the most significant developments on Wall Street in decades -- a private stock market for super-wealthy investors
Stock market brushfire; will there be a run on the banks?
By some estimates, $326.3 billion has now been added to the G-7 Nations̢۪ intra-banking system to prevent a breakdown. That amount will steadily rise in the weeks ahead as the situation continues to deteriorate


Yet, dig this, it's these remaining middle class working stiffs PATRIOTIC duty to give up their life, liberty and pursuit of happiness as the corporate state imposes ever more ceding of civil liberties. And don't forget to vote for the incumbents come 2008!!!! To complain of the upcoming doom will be anti-American. The death of sovereignty in globalISM is going to make for lots of victims and strange ideology. Our rights trampled for GOOD.]

The SEC has announced that they will allow mortgage lenders to work out resetting mortgages with borrowers in cases where there is an obvious default about to happen.

[Note there are probably as many as a dozen cases under investigation for sub-prime related mortgages offenses as of today, it's right there,on that link ...]

In many cases, that will mean extending the lower coupon rate another year.

Yes, John, I know you think it may buy you another 3 years; you've been brain washed into thinking that. But here is the recent news out of Japan on THAT. See there simply must be some trading partners left in a GLOBAL market. Unless of course, we want to see a complete realignment of geoeconomic alliances. In which case, Russia will have a whole lot of resources fall right into their lap. No wonder the price of uranium continues to rise.]

That may just put off the problem, but it will keep a home off the market and allow for a more orderly solution.

[No! all this will do allow time for another class of investor to step forward to take the rap. Have a look at Buffet's ploy just now ... after the pension funds get NAILS IN THEIR COFFINS, the insurance companies are NEXT. And Buffet will come in and scalp THEM later for profit$ as he has the "time" to wait this out, iffen the SEC don't get "with" it . Do they have the legal labor power to do this? .. stay tuned. My guess is forget THAT; however, increasingly, many small and institutional investors see their involvment as the best possible solution.]


Will a Fed Rate Cut Make a Difference?

A rate cut will not make a difference as to the credibility of the ratings,
nor will it transform bad debts into good ones.

But my view has been for a year that the economy is heading for a recession due to the housing market problems. Given the turmoil in the markets, a rate cut may be in the offing later this year. And given that lower rates will make mortgages cost less, that will help.

[The market and the economy is heading into a recession because that is where it was heading, hedge fund crisis or NO. Most of the "profitablity" was just hidden inflation; the reserve currencies were merely hiding it very nicely. The Thang, the Ultimate Cycle going on is so very very complex, isn't it . are you beginning to get that? Remind me not to trust you with the economic policy of the future. Dear Reader, I warned you this was gonna get TRIPPY. And a quiet reminder: don't forget that meanwhile, the Big BoyZ are still agambling away.]

The significance of today's cut of the discount rate, and the willingness to look at up to 30 days of loans and high-quality asset-backed paper, is not the actual cut but more the boost to confidence. It is the Fed saying to the market, "Daddy's home. Everything is going to be all right."

[Boyz and girlz, I called the date as of 28 June that the market was SHOT. Gone, kaputo. Have a nice look at that chart on that confidence link and it's worse TODAY... AND Nero fiddled while Rome burned.]

Beyond that, let's look at what Nouriel Roubini says today in his blog about the Fed move to cut the discount rate:

[Here is a nice long *snip* as I am going to spare you all this *rare and fruitless* GARBAGE and suggest that you read HERE instead!! as it will make you see how muddied are the waters in the river our dear Christian must cross have become.]

*snip*

While I am not so sure that the Fed will cut in September, they have signaled that they are aware of the problems, as noted above.

[Problems for WHOM? Surely not the Little Man, they've abrogated responsibility for him long, long ago ... It's SOCIALISM for the rich, You are On Your OWN -- For the newly initiated the meme is known as YOYO, as in Katrina and all other catastrophes in this age of neoconISM -- for the rest of us folks and God help those on fixed incomes!!! I've been reading the Fed Reserve minutes all year waiting for them to pay attention to the problems being created, as the chairs got shuffled on the Titanic, plowing along looking splendid with the bolts all loose.

This upcoming period will be called FREE TRADE and the taxobabble will get in full swing. You owe it to America's Security and Prosperity to lose your home and STARVE. First you were supposed to be a loyal consumer and lie to get your home loan to feed the profit$ bottom line, sold to you by bottom feeders .. now you are to WAVE THE FLAG with a much tightened belt; you'll just have to make do with stone soup, stone
cold soup, as the oil prices continue to sky rocket .. This article is staring in the right soup pot, but barely begins to scratch all the implications of the current situation.]

As an answer to my opening question, I think we are in for a return of the Muddle Through Economy rather than the End of the World. Credit markets will get back to normal, as there is a lot of money that needs to find a home. It is just looking for a credible home and one that will feature higher risk premiums and spreads.

Please explain "It", what the 'money' ..? No you are just looking to maintain your cozy little billet and your adoring fans which you may or may not continue to do, as the powers that be determine you shall, just as they dusted off the dotcom people, the S&L boys, and all the other Tools. You've been commodified, too.

That's how the Big Fish feed.

And for those new to this

there is no insurance for ANYONE

or anything

save what the ritzos want saved.

I pick on John's particular article becuz I know over the weekend it is getting HUGE HUGE internet reading .. I can see the google links to it gathering, and know it will leave people thinking there is some way to save our fundamentalist Capitalist Believers from Hell's Gate. But John, to get with it, time to pick up a new book - Slaugherhouse Five.

The old metaphor for the True Believers is outta date!

It just might hold some Answers about what to do to quit thinking up IDEAS to rationalize what is basically a corrupted, horrifying way to run our world.
"there is nothing intelligent to say about a massacre."
~ Kurt Vonnegut, d. 2006


*snip*
Have a nice vacation!!
Your enjoying the ride analyst,
John

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